Penalty on Early Termination of Employment

Answered according to Hanafi Fiqh by

Q: An employer enters into a one year contract of employment with a senior level employee with a specific and unambiguous clause that says:


Three calendar months notice period will apply if your employment is terminated at any stage. Should the notice period be shorter than 3 calendar months, then the defaulting party must pay the balance of the salary equating to the remainder of the notice period not served (eg: should the employee request to leave with a 1 month notice period, then the employee must pay the employer the salary amount for the balance of the 2 months).      

The above applies to both the employee and the employer.

  1. Is this clause fair and acceptable from an Islamic viewpoint if the employee signed the agreement willingly and after having had the clause explained to him and was given sufficient time to ponder over it before he signed the agreement.

  2. Would any sin be committed to holding either party accountable to this clause in the  agreement if services are terminated. (Assuming that the termination of services itself is not the problem issue)

Please note that the clause will apply both ways and not only for the benefit  of the Employer i.e. if the employer for example wishes to terminate the services of the employee on one months notice then the employer will have to pay the employee the balance of 2 months salary even though he will not physically be at work and vice versa.

Penalty on Early Termination of Employment

A: In an employment contract it is incumbent upon both parties (the employer as well as the employee) to abide by the rules and regulations of the contract provided it does not contradict any law of Shariat. If any condition or clause in the employment contract contravenes any law of Shariat, then fulfilling the condition will be impermissible irrespective of whether it relates to the employer or the employee. The clause of “charging the defaulting party the balance of the salary equating to the remainder of the notice period not served”, is an invalid condition in Islaam, hence impermissible. However if the employee was employed for a specific period e.g. 3 months it will be impermissible for any party to unilaterally terminate the contract without any valid shar’ee excuse, though in this case also charging a penalty will be impermissible.  

حدثنا الحسن بن علي الخلال حدثنا أبو عامر العقدي حدثنا كثير بن عبد الله بن عمرو بن عوف المزني عن أبيه عن جده : أن رسول الله صلى الله عليه و سلم قال الصلح جائز بين المسلمين إلا صلحا حرم حلالا أو أحل حراما والمسلمون على شروطهم إلا شرطا حرم حلالا أو حل حراما
قال أبو عيسى هذا حديث حسن صحيح. (ترمذي 1/251)


Answered by:

Mufti Zakaria Makada

Checked & Approved:

Mufti Ebrahim Salejee (Isipingo Beach)

This answer was collected from, where the questions have been answered by Mufti Zakaria Makada (Hafizahullah), who is currently a senior lecturer in the science of Hadith and Fiqh at Madrasah Ta’leemuddeen, Isipingo Beach, South Africa.

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